ULSD IMO 2020 Compliant 《0.5 Sulphur Content Oil

[Marc W 0]

Hi looking to understand views on what the forecasted price for the new IMO (less than 0.5% Sulphur content) oil might be per MT

Thanks

Marc

[Jan van Eck + 7,558]

On 3/1/2019 at 6:18 AM, Marc W said:

Hi looking to understand views on what the forecasted price for the new IMO (less than 0.5% Sulphur content) oil might be per MT

 

Depends on what oil you are referencing.  Current maritime heavy fuel (HFO 380) seems to be somewhere around $330/MT.  If you are talking about this stuff, being further refined to remove sulfur, then - who is going to do that?  And what will be the market for it? Let's remember that marine engines seem to consume some 4%-5% of total oil production. That is a lot of oil!  When the IMO says, administratively, "you cannot use HFO or IFO," then it is taking a lot of oil off the market.  What is a shipowner to do? 

If you are talking about "USLD," the 42-cetane stuff that highway trucks use, then you are suddenly barging into a steady-state market with a vast amount of new demand.  So a bidding war for product erupts.  The final price rises until sufficient supplies are made available by refiners to both markets - truck and marine.  If you are suggesting that IFO is going to be upgraded to no-sulfur product, then by definition some new refining steps have to be provided, which takes CAPEX,  and that cost has to get paid for, which means the price of (refined) IFO180 is going to rise.  Now if you ask:  "how much?", you are getting in an area that is pure speculation, made worse by traders and futures speculators who will further distort those markets. 

Assuming that the IMO sticks to its guns (and grants no extensions), and there there will be no "cheating" (and there likely will be, as a lot of money is involved), and that the China trade disputes do not decrease marine demand (and they probably will decrease demand, both for containerships and for bulk carriers importing materials into China), then there will be a crowding-out effect between competing marine and road diesel buyers, so you can expect a dramatic price increase, both in diesel and in IFO, until everything once again stabilizes, after new refining and upgrading is on stream.  Who goes first?  I sure don't know. Will there be some pell-mell rush to do upgrading?  I don't know. Will the refiners end up with over-capacity?  I don't know. 

But bear in mind that there is yet another factor lurking in the background, one that gets consistently discounted.  And that factor is technological innovation.  A new process is being developed that takes tar-sands oil and extracts the oil using recyclable solvents.  I have been studying this and form a technical aspect it is seriously impressive.  Can it be made to work on an economic scale, where large amounts of heavy tar-sands slop is upgraded seamlessly into nice clean HFO380?  Hey, could happen.  in that case, expect Canada to be the new world provider of heavy marine fuel oils. Now, wouldn't that be a switch?